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ISDA publishes the 2021 ISDA Interest Rate Definitions

  • Global
  • Financial services and markets regulation - Derivatives
  • Financial services



On 11 June 2021, the International Swaps and Derivatives Association Inc. (“ISDA”) published the 2021 ISDA Interest Rate Definitions (the “2021 Definitions”).   

The 2021 Definitions will replace the 2006 ISDA Definitions as the standard reference document for interest rate derivatives from 4 October 2021. Market participants should therefore ensure that their legal, operational and trading teams are prepared for the changes made in the 2021 Definitions prior to that date.    

Since their publication, the 2006 ISDA Definitions have been updated periodically via supplements in order to align them with prevailing market practice at the relevant time and to reflect regulatory changes.  The 2006 ISDA Definitions are currently augmented by over 70 supplements which can make them an unwieldy source. The main book of the 2021 Definitions will consolidate the various the supplements into a single document.

The 2021 Definitions will also incorporate other updates reflecting input from market participants through the ISDA Interest Rate Definitions Working Group. ISDA has published a factsheet which provides an overview of the 2021 Definitions.

ISDA has dispensed with a hard copy booklet for the 2021 Definitions. Instead, the 2021 Definitions will be made available on a new user platform with version control capabilities meaning that it will no longer be necessary for updates to be made via supplements. 

What has changed?   

The 2021 Definitions retain many of the key provisions of the 2006 ISDA Definitions. A number of changes have however been made to certain provisions to reflect changes in market structure, regulation and technology.

Cash settlement provisions 

Feedback provided to ISDA by members of the ISDA Interest Rate Definitions Working Group suggested that the cash settlement mechanics for early termination and swaptions should be updated to reflect changes to the derivatives market practice since publication of the 2006 ISDA Definitions. For example, regulatory reform has meant that many derivatives contracts are now collateralised and market participants expressed a desire for a more robust, standardised approach for valuing collateralised transactions.  New methodologies have been introduced in the 2021 Definitions in order to reflect this feedback.

Introduction of a generic fallbacks framework   

The 2021 Definitions introduce a generic fallbacks framework which applies following the temporary or permanent cessation of a benchmark to which bespoke fallbacks do not apply (i.e. those fallbacks which currently apply under Supplement No. 70 of the 2006 ISDA Definitions (the “IBOR Fallbacks Supplement”). For further information on the fallbacks contained in the IBOR Fallbacks Supplement, please see our guide: “Lighting the way forward” Guidance on the 2020 ISDA Fallbacks Protocol and Supplement No 70 to the 2006 ISDA Definitions. The new generic fallbacks largely follow the fallbacks and triggers contained in the ISDA 2018 Benchmarks Supplement.

Amendments to Floating Rate Options 

General updates have also been made to the naming conventions for the Floating Rate Options. Under the 2006 ISDA Definitions, the Floating Rate Options are listed in narrative format which presented challenges to firms when applying the Floating Rate Options to internal trading systems.

The 2021 Definitions introduce a new Floating Rate Matrix splitting each Floating Rate Option into separate categories. A further seven new sub-categories of Screen Rates (each referred to as “Style”) have also been introduced with the Floating Rate Matrix clearly setting out the operative provisions of the main book that will apply. ISDA has also taken this opportunity to update outdated references in the main book.  

Calculation Agent provisions

The 2021 Definitions introduce a new Calculation Agent Standard. Under the new Calculation Agent Standard, the Calculation Agent is required to act in good faith and use commercially reasonable procedures to produce a commercially reasonable result when making determinations. The Calculation Agent Standard in the 2021 Definitions mirrors the standard that applies to the Determining Party under the close-out provisions in the ISDA 2002 Master Agreement. The new Calculation Agent Standard is a more objective standard than applies under the 2006 ISDA Definitions.

New provisions enabling parties to request further information from the Calculation Agent have also been included. A framework for disputing determinations made under the cash settlement and generic fallback provisions has also been introduced under the 2021 Definitions.

Payment and calculation provisions

Provisions with respect to the payment of floating amounts have updated in the 2021 Definitions. New Business Day Conventions (which allow parties to adjust the specified dates, including a payment date, if the date falls on a day that its not a Business Day) have been included.

Next steps

ISDA has confirmed it will no longer update the 2006 ISDA Definitions after the implementation date. Firms should therefore consider carefully whether it is appropriate to continue to incorporate the terms of the 2006 ISDA Definitions into derivatives transactions entered into after the implementation date. Firms should use the time prior to the implementation date to make any adjustments to policies and procedures needed to reflect the terms of the 2021 Definitions.    

In relation to legacy transactions, ISDA is consulting with its members on the development of a protocol which would update legacy trades incorporating the 2006 ISDA Definitions to incorporate the 2021 Definitions instead.

For further guidance on the ISDA 2021 Definitions, please get in touch